Giverny Capital Asset Management exited its position in Align Technology during the fourth quarter of 2025, citing concerns over potential long-term resistance from orthodontists who view clear aligners as a threat to their traditional role in overseeing treatments. Despite praising Invisalign as a superior product poised to gradually replace metal braces, the firm highlighted how digital scanners reduce the need for hands-on orthodontist involvement, potentially slowing adoption in key segments like teen orthodontia. This move came amid broader portfolio adjustments, including sales of other holdings and new investments in niche leaders, as the fund underperformed the S&P 500 for the year with a 12.58% return versus the index’s 17.88%, largely due to an underweight in mega-cap tech stocks. Align Technology’s shares closed at $164.12 on January 29, 2026, reflecting a 25.10% decline over the past 52 weeks and a market capitalization of $11.896 billion.
Giverny Capital Asset Management, a firm focused on long-term ownership of high-quality businesses, made a notable portfolio shift in the final quarter of 2025 by fully divesting its stake in Align Technology, the company behind the Invisalign system of clear aligners. This decision stemmed from a nuanced assessment of the orthodontics industry’s dynamics, where technological innovation meets entrenched professional interests. Align Technology has built a dominant position in the market for invisible teeth-straightening solutions, but the firm identified structural headwinds that could impede its expansion into broader demographics.
Align Technology operates in the rapidly evolving field of digital orthodontics, producing not only clear aligners but also intraoral scanners like iTero that enable precise, non-invasive treatment planning. The company’s core product, Invisalign, represents a shift away from traditional metal braces, offering patients a discreet, removable alternative that appeals particularly to those seeking aesthetic improvements without the visibility or discomfort of wires and brackets. Over the years, Align has invested heavily in research and development, outspending competitors to refine its manufacturing processes and expand its ecosystem of digital tools. This has resulted in a scalable operation that produces millions of custom aligners annually, leveraging 3D printing and AI-driven design to customize treatments for individual patients.
The firm’s rationale for the sale centered on the potential disruption to the orthodontist profession itself. Clear aligners, powered by digital scanning technology, automate much of the diagnostic and monitoring process that orthodontists traditionally handle manually with braces. In a braces-based treatment, specialists oversee adjustments over multiple visits, ensuring precise control and billing for ongoing services. By contrast, Invisalign relies on initial scans and software algorithms to generate a series of aligners that patients swap out at home, minimizing the need for frequent in-office interventions. This efficiency, while beneficial for patients, poses an existential challenge to orthodontists—a group of highly skilled professionals with advanced degrees and substantial earning potential, often exceeding $200,000 annually in the U.S.
Giverny noted that orthodontists are unlikely to accelerate the adoption of a technology that could erode their role, especially in pediatric and adolescent cases where parental trust in expert oversight remains paramount. While adults, who typically avoid braces due to professional or social concerns, have embraced Invisalign—driving Align’s dominance in that segment with market share estimates above 80%—the transition in younger patients has been slower. Teens and children account for a significant portion of the global orthodontics market, valued at over $10 billion annually in the U.S. alone, but resistance from practitioners could cap penetration rates. Data from recent quarters shows Align’s teen case starts growing at single-digit percentages year-over-year, lagging behind adult volumes despite marketing efforts targeting families.
This concern is amplified by broader market trends. The orthodontics sector faces increasing competition from direct-to-consumer aligner providers and generic alternatives, which have commoditized simpler cases and pressured pricing. Align’s average selling price per case has fluctuated, dipping to around $1,200 in some regions amid economic pressures, though the company has countered this through bundled services and premium offerings like Invisalign Comprehensive. Additionally, macroeconomic factors such as inflation and consumer spending caution have impacted elective procedures; Align reported a 2% revenue decline in its latest full-year results, with total sales hovering near $3.8 billion. Earnings per share stood at approximately $7.50, reflecting operational efficiencies but also highlighting vulnerability to volume slowdowns.
To contextualize the sale, Giverny Capital’s overall strategy emphasizes compounding capital through ownership of resilient, niche-dominant companies with strong moats and management teams. The fund’s 2025 performance, while positive at 12.58% net of fees, trailed the S&P 500’s 17.88% gain, primarily because of its underweight exposure to the mega-cap technology stocks fueling AI-driven market rallies. Holdings in companies like Alphabet and Arista Networks contributed positively, with Alphabet alone adding 4.7% to the portfolio’s return amid 30% earnings growth. However, the fund’s emphasis on mid-cap leaders—28% of assets in firms under $18 billion market cap versus just 2% for the index—exposed it to valuation compressions in non-tech sectors.
In conjunction with the Align exit, Giverny divested other underperformers, including CarMax, a used-car retailer grappling with inventory challenges and margin squeezes in a high-interest-rate environment, and Fiserv, a payments processor facing intensified competition in fintech. These moves freed capital for new positions in Watsco, the largest distributor of HVAC equipment in the U.S., and Hawkins, a water treatment specialist serving municipal and industrial clients. Watsco, with its tech-forward supply chain and market-leading scale, aligns with Giverny’s preference for efficiency-driven businesses; it has compounded earnings at over 15% annually for decades. Hawkins, meanwhile, benefits from regulatory tailwinds in water quality standards, posting consistent mid-teens revenue growth.
Align’s financial profile remains solid, with a balance sheet showing over $1 billion in cash and minimal debt, enabling ongoing share repurchases—$500 million authorized in 2025 alone. Return on invested capital exceeds 20%, underscoring efficient operations, and the company continues to innovate with expansions into restorative dentistry and international markets, where penetration in Europe and Asia lags the U.S. Analyst consensus projects 8-10% revenue growth in 2026, driven by recovering consumer confidence and new product launches like the iTero Lumina scanner, which enhances scan accuracy and speed.
| Key Financial Metrics for Align Technology (as of Q4 2025) | Value |
|---|---|
| Market Capitalization | $11.896 billion |
| Stock Price (Close on January 29, 2026) | $164.12 |
| One-Month Return | 5.18% |
| Trailing P/E Ratio | 21.9x |
| Forward P/E Ratio | 18.5x |
| Revenue (TTM) | $3.8 billion |
| EPS (TTM) | $7.50 |
| Cash Reserves | $1.2 billion |
| Debt-to-Equity Ratio | 0.05 |
Despite these strengths, Giverny’s sale reflects a disciplined approach to risk, prioritizing businesses where competitive advantages are less contested. The orthodontics market’s total addressable size—estimated at 20 million new cases globally each year—offers ample runway, but fragmented adoption and professional pushback could extend the timeline for Align to capture a larger share beyond its current 11% overall penetration in braces and aligners combined.
Looking ahead, Align’s strategy involves deepening partnerships with dental professionals through training programs and co-marketing, aiming to alleviate concerns over job displacement by positioning clear aligners as a complementary tool rather than a replacement. Recent initiatives include expanded tele-dentistry integrations and AI-enhanced treatment simulations, which could accelerate teen uptake if economic conditions improve. However, with U.S. interest rates remaining elevated and household budgets strained, discretionary spending on orthodontia may remain muted, particularly in middle-income segments.
Giverny’s portfolio now leans toward sectors with clearer growth trajectories, such as insurance with Kinsale Capital Group, which boasts the lowest expense ratios in its peer group and rapid quoting capabilities, and building products with Installed Building Products, which grew earnings modestly despite a sluggish housing market. These holdings exemplify the fund’s focus on companies with durable advantages, high returns on capital, and adaptability to technological shifts without facing direct existential threats.
In summary of the key portfolio dynamics, Giverny’s top contributors in 2025 included Alphabet (up 66%), Medpace Holdings (up 69%), and Arista Networks (up 18.5%), while laggards like CarMax (down 48.7%) and Align (down 37.9%) dragged performance. The fund’s annualized return since inception in April 2020 stands at 18.00% net, versus 20.26% for the S&P 500, underscoring a commitment to quality over momentum.
Portfolio Adjustments and Market Context
Beyond the Align sale, Giverny’s fourth-quarter activity highlighted a reallocation toward undervalued opportunities. Additions to TWFG, an insurance agency platform, and Kinsale reflect confidence in the property-casualty space, where low-cost structures and tech integration drive margins. New entrant Watsco dominates HVAC distribution with a 20% U.S. market share, benefiting from energy efficiency mandates and aging infrastructure replacements. Its digital platform, used by over 100,000 contractors, streamlines orders and inventory, yielding gross margins above 27%.
Hawkins, another fresh position, specializes in chemical formulations for water treatment, serving over 1,000 municipalities. With U.S. water infrastructure graded poorly by engineering associations, demand for its services is projected to grow at 10% annually, supported by federal funding initiatives.
This repositioning occurs against a backdrop of market bifurcation, where AI hype has propelled a handful of stocks—representing 37.6% of the S&P 500—to outsized gains, while mid-caps languish. Giverny’s 45% allocation to sub-$54 billion market cap firms contrasts sharply with the index’s 12.5%, betting on eventual mean reversion as earnings compound.
Key Points on Align Technology’s Business Model
Product Ecosystem : Invisalign aligners, fabricated via proprietary thermoforming, are complemented by iTero scanners that capture 3D images in seconds, reducing errors and treatment times by up to 50% compared to impressions.
Market Segmentation : Adult cases comprise 60% of volume, with teens at 40%; international revenue accounts for 45%, led by Europe.
Competitive Moat : Patents on aligner materials and software algorithms, plus a vast database of over 15 million treated cases, enable predictive modeling.
Growth Drivers : Expansion into general dentistry for milder cases, partnerships with implant companies, and emerging markets in Latin America.
Risks : Economic sensitivity, as orthodontia is often uninsured; patent expirations allowing cheaper rivals; regulatory scrutiny on direct-to-consumer models.
| Comparative Performance: Giverny vs. S&P 500 (Annualized) | Giverny Net Return | S&P 500 TR |
|---|---|---|
| One-Year (2025) | 12.58% | 17.88% |
| Three-Years | 20.72% | 23.01% |
| Five-Years | 12.00% | 14.42% |
| Since Inception (Apr 2020) | 18.00% | 20.26% |
Giverny’s emphasis on businesses like these—resistant to disruption and poised for steady compounding—positions it for potential outperformance as market enthusiasm for speculative tech wanes.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendations, or an endorsement of any securities. All data and opinions are based on publicly available information and should not be relied upon for making investment decisions. Readers are encouraged to conduct their own research and consult with qualified professionals before investing.
